Case Study: What’s an Owner to Do?

The following case is based upon a number of situations. Names, locations and other facts have been changed to illustrate and simplify the story. As such, any resulting similarity to any one business or person is coincidental:

Barry’s business had been successful over the years because of his personal relationship with customers. He has given great service, watched expenses carefully, and tucked away some significant money. He’s also been blessed with customers who themselves were growing, which is a big help. That was until two years ago. Now, the growing customers don’t buy as much and, as a result, sales dropped from $1.5 million to $1 million. The obvious answer to shrinking sales is to implement a well-defined selling plan, which I’ve written about before (“What’s a Sales Manager to Do?” August 2013). But here we find a different issue. How to control wage expenses while a shrinking company shrinks and, at the same time, enjoy the fruits of past labors.

Barry is well aware of the wage benchmark, which is about 25 percent of sales to be spent on “wages walking out the door.” So, as sales decreased he was faced with reversing the sales drop, decreasing the number of workers, or reducing pay. He chose a hybrid.

He was open with the employees, told them of the decline, and asked what they wanted to do. They all agreed that the best plan was for everyone to cut back on hours. So, instead of 40 hours a week they all were cut to 32, which can be a good temporary solution, but not a permanent one.

It’s temporary because it is not sustainable. Workers universally live on 100 percent of their paycheck. Taking a 20 percent hit for the team can be done for a short time, but not for three years. By that time, management needs to right size the business and get back to full pay.

Oh yes, there are two other significant factors you need to know about.

Since Barry’s sales have dropped, he hasn’t engaged in a real selling effort. Instead he has focused on bidding on low margin work which further exacerbates the problem. The workers see that selling is not being done.

And then there’s the sticky part.

Barry and his wife not only maintained their lifestyle through it all but even got to do some of those things that were on their bucket list. And why should they not? After all, they earned the money in the past. They weren’t paying for it from current operations of the business. Barry’s pay was reduced as well as the workers, so it’s fair, right?

Well, there’s this little thing of tone.

Barry and the wife went to the Super Bowl. And they took that trip to Europe, something he had promised her for years. And Barry took the whole family to St. Thomas to celebrate Christmas.

But for Barry in his exuberance to share the good news of the trips, show the pictures and tell workers of the family’s adventures at the same time workers were earning 80 percent of what they previously earned was a bit much for some. Many workers felt they did their part in reducing wages but Barry didn’t appear to be in the barrel with them.

“Hey, they should be happy they all have jobs! “ Yes, and they are. “They all agreed that we should reduce hours instead of laying someone off.” Yes, they did; but that was before the trips.

This is a sticky wicket.

It seems to them like the budget has been balanced on the backs of workers without Barry doing his part of trying to get sales back to the previous level. After three years, resentment has risen which seems to me to be a natural phenomenon.

What to do?

It’s not easy. Barry and the wife deserve to spend their money as they wish. However, they can’t be tone deaf to the struggles of the workers who helped them earn this money in previous years. It would help if Barry wasn’t so open with all the uncommon excursions of the family. But it would be of most help if Barry actively engaged in helping to increase sales. And it’s time to downsize the business by eliminating excess workers and being paying the remaining ones similar to or better than before.

Workers generally have no resentment to an owner making a pile of money as long as they perceive themselves as being paid fairly. Many take pride in their owner having the big house and having stature in the town. However, inequity in the workplace is what destroys morale. And, from the workers’ view, having to take pay cuts with the owner not participating in their view is seen as inequitable.

Get this business back on a growth path and all will be forgiven. That’s the good news. But lay off the joy while the workers are suffering.

Reach Tom at (304) 541-3714 or message tom@crouser.com and yes, he is available for consulting. Connect on Facebook and LinkedIn and follow his business tweets on Twitter @tomcrouser. Tom is Senior Contributing Editor of this magazine, chairman of CPrint International and principal of Crouser & Associates, Inc., 235 Dutch Road, Charleston, WV 25302, www.crouser.com, www.cprint.com or call (304) 965-7100.